On 10 December, 2012, the Central Government introduced the Competition (Amendment) Bill, 2012 (the Bill) in Parliament. In October 2012, the Union Cabinet had approved the proposal submitted to it by the Ministry of Corporate Affairs, to amend certain provisions of the Competition Act (the Act) related to (i) merger control, and (ii) consultation between the Competition Commission of India (the Commission) and statutory authorities.
The Bill also envisages amendments to certain other provisions of the Act, related to (i) the prohibition on anti-competitive agreements and on the abuse of dominant position, (ii) hearing the concerned parties in an inquiry, and (iii) the Director-General's powers of search and seizure. This Bulletin deals with the salient features of the Bill.
Merger Control Provisions
- Time-frame for Approval of a 'Combination'
Section 6(2) of the Act makes it mandatory for a party to a proposed 'combination' (i.e., merger or amalgamation of enterprises, or acquisition of one or more enterprises) to give notice of the same to the Commission, if the value of assets or that of turnover involved exceeds the values prescribed under Section 5 of the Act. On receipt of such notice, the Commission must pass an order or issue a direction within 210 days, failing which Section 31(11) deems that the Commission has approved such proposed 'combination'.
The Competition Commission of India (Procedure in Regard to the Transaction of Business Relating to Combinations) Regulations, 2011 (the Combination Regulations) provide that the Commission shall 'endeavour' to pass such order or issue such direction within 180 days from the date on which the parties filed the notice under Section 6(2). The Bill proposes to amend Section 31(11) as above, so that it is deemed that the Commission has granted its approval to a proposed 'combination' on the expiry of 180 days from the date of such notice.
In reducing the above-referenced time-frame by 30 days, this amendment is likely to bring down the transaction costs. In practice, however, this amendment is likely to affect only those proposed 'combinations' which raise serious concerns of being anti-competitive and therefore call for more detailed scrutiny on the Commission's part.
- Definition of 'Group'
Explanation (b)(i) to Section 5 of the Act defines 'group', as two or more enterprises which, directly or indirectly, are in a position to exercise 26% or more of the voting rights in another enterprise. The Bill proposes to amend the aforesaid definition, so that only on being in a position to exercise 50% or more of the voting rights are enterprises considered to constitute a 'group'. This amendment is in line with a Notification (dated 4 March, 2011) issued by the Ministry of Corporate Affairs. This will bring greater clarity to the definition of 'group' in the Act.
- Differential Thresholds
The Bill seeks to insert Section 5A in the Act, so as to empower the Central Government to specify different value of assets and/or of turnover for any class or classes of enterprises, which if exceeded would trigger the obligation to give notice under Section 6(2), albeit in consultation with the Commission. Underlying this amendment is the concern that in certain sectors, even a proposed 'combination' which otherwise need not be notified under Section 6(2), should still be subject to the Commission's scrutiny.
Prohibition on Anti-competitive Agreements and the Abuse of Dominant Position
- Vertical Agreements in respect of Services could also be found to be Anti-competitive
Section 3(4) of the Act, read with Section 3(2), prohibits any 'vertical agreement' (i.e., agreement amongst enterprises at different stages or levels of the production chain in different markets), which causes or is likely to cause an appreciable adverse effect on competition within India (hereinafter referred to as 'anti-competitive agreements').
Whilst Section 3(4) of the Act refers to 'vertical agreements' in respect of both trade in goods and the provision of services, the Explanation to Section 3(4) which clarifies what is included within the scope of the specifically-enumerated 'vertical agreements' (i.e., tie-in arrangements, exclusive supply agreement, exclusive distribution agreement, refusal to deal and resale price maintenance), contains no express reference to the provision of services. The Bill seeks to amend the Explanation to Section 3(4) to include express references to the provision of services, and thereby removes ambiguity in this regard.
- Exemption for IP Rights from the Prohibition on Anti-competitive Agreements
Section 3(5) of the Act exempts from the prohibition on anti-competitive agreements, any measures undertaken by a party in the exercise of his right to restrain any infringement of, or to impose reasonable conditions as may be necessary for protecting, any of the rights which such person already enjoys or may enjoy under any of the specified statutes relating to intellectual property (e.g. the Copyright Act, 1957; the Patents Act, 1970; etc.). The Bill proposes to extend the aforesaid exemption to even those rights which a party already enjoys, or may enjoy, under "any other law for the time being in force relating to the protection of other intellectual property rights".
It is unclear as to whether this amendment would extend to protection of intellectual property rights under the laws of any other jurisdiction. In any event, however, Section 32 of the Act confers extra-territorial jurisdiction on the Commission over anti-competitive agreements. Therefore, it is doubtful whether merely enjoying IP rights under foreign laws could bar the Commission's extra-territorial jurisdiction as above.
- Abuse of Dominant Position by more than one Enterprise or Group
Section 4 of the Act prohibits the abuse of dominant position by any enterprise, or group of which such enterprise is a part. The Bill proposes to amend Section 4, in order to prohibit the abuse of dominant position by any enterprise or group, whether "jointly or singly".
The aforesaid amendment is significant, as it would introduce to Indian competition law, the concept of 'collective dominance', which is well-established in the European Union. For this purpose, however, a legislative amendment was necessary as the Commission's order (of 9 May, 2012) in M/s Royal Energy Ltd. v. Indian Oil Corporation Ltd. and Others, MRTP Case No. 1 /28, had held that the concept of 'collective dominance' is not recognized under the Competition Act.
Definition of 'Turnover'
Section 2(y) of the Act defines 'turnover' to "include the value of sale of goods or services". The Bill proposes to amend the aforesaid definition to expressly exclude "the taxes, if any, levied on sale of such goods or provision of services".
The definition of 'turnover' is significant, as this not only determines whether or not the parties to a proposed 'combination' are required to give notice under merger control provisions, but also the quantum of penalty which the Commission may impose under Section 27(b) of the Act.
The Combination Regulations already provide that the turnover shall be computed in accordance with Section 2(y), excluding indirect taxes, if any. The aforesaid amendment, however, would remove ambiguity as to whether or not indirect taxes are included in the definition of 'turnover' for the purpose of computation of penalty.
- Consultation Process to be made Mandatory
If, in any proceedings before a statutory authority, a party raises the issue that a decision which such authority has already taken, or proposes to take, could contravene the provisions of the Competition Act, then a voluntary consultation process is provided for under Sections 21 and 21A of the Act.
The Bill seeks to make such voluntary consultation mandatory. Such amendment would demarcate the jurisdiction of the Commission vis-a-vis statutory authorities. It may be noted that merely the process of consultation is mandatory, and the Commission's opinion once given pursuant to such consultation process, will not bind the statutory authority and vice-versa.
- Mandatory to give Due Consideration to the Opinion of Statutory Authorities
Section 27 of the Act empowers the Commission to pass all or any of the orders specified therein (e.g. 'cease-and-desist', imposition of monetary penalty, and/or the modification of agreements), on finding that an enterprise is a party to an anti-competitive agreement, or has committed an abuse of its dominant position.
The Bill proposes to amend Section 27 so as to make it mandatory for the Commission to give "due regard", while passing any order thereunder, to the opinion given by the statutory authority pursuant to the proposed mandatory consultation process. Such amendment would make the consultation process more effective. However, it would also put the Commission at a relative disadvantage vis-a-vis the statutory authorities, as no similar requirement is imposed on them to consider the Commission's opinion while passing any order.
Right of Hearing
- Prior to the Imposition of Penalty
The proviso to Section 27(b) of the Act states that the Commission shall penalize each of the participants in a cartel, with the higher of upto three (3) times of the participant's profits, or 10% of its turnover, for each year for which the cartel continued to remain in existence. The Bill seeks to amend the proviso, so as to make it mandatory for the Commission to give an opportunity of hearing to each participant, prior to the imposition of penalty.
The Bill seeks to introduce the aforesaid requirement only while imposing a penalty on cartels (and not other kinds of 'anti-competitive agreements'). Perhaps the reason behind this is that only in respect of cartels the Commission is obligated to impose the higher of the two penalties which the Act provides for.
- Inquiry into Allegedly Anti-competitive Agreements or Abuse of Dominant Position
Section 26 of the Act provides that the Commission shall refer to its Director-General (DG) for investigation, any information which it has received, in which it is of the opinion that there exists a prima facie case that an enterprise is a party to an anti-competitive agreement and/or has committed an abuse of its dominant position.
Section 26(5) of the Act, however, binds the Commission to invite objections or suggestions from the concerned parties, only if the Director-General's report recommends that there is no contravention. The Bill proposes to amend Section 26(7) and Section 26(8), so as to require the Commission to also give an opportunity of hearing to the concerned parties in the following events:
- If after considering such objections or suggestions under Section 26(5), the Commission is of the opinion that further investigation is called for.
- If the Director-General's report itself recommends that there is a contravention, but the Commission is of the opinion that further inquiry is called for.
The aforesaid amendment confers upon the concerned parties the right to be heard by the Commission prior to the Commission's reaching any finding, irrespective of whether the Director-General's report recommends that there is a contravention of the provisions of the Act or not.
Powers of Search & Seizure to the Director-General
Section 41(3) of the Act provides that the DG may seize any books and papers of or relating to any company, which he has reasonable ground to believe may be tampered with, only after the Chief Metropolitan Magistrate, Delhi has passed an order to this effect on an application made by the DG. The Bill proposes to amend Section 41(3), so as to empower the Director-General to seize books and papers solely on the basis of the prior authorization of the Chairperson of the Commission.
In order to further strengthen the DG's investigation powers in this regard, the Bill also proposes to confer upon him the powers conferred under the Code of Criminal Procedure, 1973, in respect of seizure. Currently, the DG only enjoys the powers as are conferred upon a civil court, under the Code of Civil Procedure, 1908 and can therefore only require the production of any documents.
By enabling the DG to seize books and papers without having to obtain an order of the Chief Metropolitan Magistrate, this amendment is likely to enhance the DG's power to obtain evidence.
Selection of Members of the Commission
Section 9(1) of the Act provides that the Central Government shall appoint the Commission's members based on the recommendations of the selection committee. The Bill proposes to amend Section 9(1) so as to include the Chairperson of the Commission in such committee.
Certain amendments (e.g. reducing the time-frame from 210 to 180 days, amending the definitions of 'turnover' and 'group') trace their origin to the Combination Regulations and Notifications issued by the Central Government / Ministry of Corporate Affairs, which are now likely to find their way in the Act itself. Other amendments (e.g. introducing the concept of 'collective dominance', widening the ambit of the exception for IP rights) are significant amendments to the Act's substantive provisions. The remaining amendments (are either institutional (e.g. consultation between the Commission and statutory authorities, selection of the Commission's Members), or procedural in nature (e.g. giving an opportunity of hearing to the concerned parties, DG's powers of search and seizure). The Bill is now likely to be considered by Parliament in the upcoming Budget Session.